While employers in New Zealand are permitted to terminate an employee’s employment for reasons of medical incapacity, such a decision ought to be approached with care.

A broad framework has emerged from case law, which employers can use to navigate this tricky area of the law.  In this article, we have set out some critical considerations and a recent case to illustrate how these operate in practice.

Legal Framework

Employees who believe they have been unfairly dismissed may raise a personal grievance claim under the Employment Relations Act.  The legal question for the Employment Relations Authority or the Employment Court to decide is:

whether the employer’s actions and how the employer acted, were what a fair and reasonable employer could have done in all the circumstances at the time the dismissal or action occurred.

A number of factors are generally considered by the Authority or the Court when deciding whether a termination for medical incapacity was justified.

We set out several notable considerations below:

  1. Whether the employee was given a reasonable opportunity to recover, considering the employment agreement, any relevant policy provisions, the nature of the position held by the employee, and the employee’s length of service.
  2. Whether the employer undertook a fair and reasonable inquiry into the employee’s prognosis while engaging with them adequately.
    • Such an inquiry is likely to involve seeking and considering relevant and up-to-date medical information, assessing the employee’s prospects of returning to work and when the employee will be fit and able to perform their duties.
  3. Whether the employer notified the employee of the possibility of dismissal in advance and provided them with a reasonable opportunity to respond.
  4. Whether the employer genuinely and fairly considered the employee’s comments and input before the decision to dismiss was made?
    • This includes considering whether there were any reasonable alternatives to termination of employment – such as redeployment to an alternative role which the employee would be fit and capable to undertake.

Crowe v Kaiapoi Collision Centre

This case concerned an employee who worked as a panel beater at Kaiapoi Collision Centre.  The employee sustained injuries that required one month of hospitalisation and, according to a medical certificate, an estimated two and a half months of recovery at home.

The most recent medical certificate provided that Mr Crowe was fit to return to work on 3 February 2020.  However, it was proposed that there be a review closer to the time with Orthopaedics and an ACC case manager.  The employer also “googled” the injury, with results indicating that recovery could be long and difficult.  Based on that information, the employer concluded that it could not be said with absolute certainty that Mr Crowe would return on 3 February.

The employer also had concerns regarding the commercial sustainability of the situation as the business was small, and the employee was their only panel beater.  The employer ultimately decided to dismiss the employee.  We note that the employer made no attempt to engage with the employee following his request for medical information.

The Authority cited established legal principle that an employer is not required to hold open a job indefinitely for an employee who is unable to attend work.   A dismissal following a long-term absence will be justified if it can be shown to have been substantively and procedurally fair.

While the employer’s commercial concerns were accepted, the presence of multiple procedural failings led the Authority to find in Mr Crowe’s favour.  In particular, the Authority found that the employer had not adequately communicated the possibility of dismissal to the employee or their concerns regarding the employee’s ability to return to work.  These omissions were significant as they deprived the employee of his right to respond.

Key Messages

The case discussed demonstrates the following procedural steps as key steps to ensure fairness:

  • Seek relevant information regarding the employee’s medical condition and prognosis.
  • Regularly engage with the employee and communicate concerns.
  • Provide the employee with a reasonable opportunity to provide their input.

Although medical incapacity can be a difficult process to manage, case law has established that both parties have a duty of good faith to engage with the other in a constructive manner.  It is clear that a long-term absence will not be sufficient to justify dismissal on its own.

Employers must also follow a fair process when assessing whether it can end the employment relationship based on the particular facts and circumstances at the time.  An employer which neglects to do so may face a successful personal grievance.

At Jennifer Mills & Associates, we have expertise on a range of employment, health and safety, and immigration matters.  Please contact us if you require any advice or assistance, we would be more than happy to assist.